MNC Community risk management strategies – From reactive risk management towards strategic community management

Projekttitel MNC Community risk management strategies – From reactive risk management towards strategic community management
Projekttype Anvendt forskning og udvikling
Frascati Ja
Tema Bæredygtighed | Business
Teaser Can companies use their work with social responsibility to control business risk?
Status Afsluttet
Ejer  
- Akademi Zealand – Sjællands Erhvervsakademi
- Kontaktperson Jacob Taarup-Esbensen

Jaes@easj.dk
50762193
Nat./Int. Nationalt
Projektperiode 01. januar 2014 - 31. januar 2017
Projektbeskrivelse  
- Projektresumé

When it comes to social risks, multinational companies (MNC) within Mining are one of the most exposed businesses one can imagine.

This project examines how social risk management is practiced through the case of Teghout copper-molybdenum mine in North-Eastern Armenia, supplemented with evidence from other mining MNCs in the country, onsite fieldwork, interviews with key stakeholders, and public available information.

Evidence suggest that a standards based social risk management strategy is adopted and that this strategy is based on international Corporate Social Responsibility (CSR) standards and philanthropic activities. However, evidence reveal that local and regional stakeholders, from whom social risk rise, feel disengaged from the process, continue to raise questions about transparency and in some cases actively oppose mining activities and that this is happening despite the use of stakeholder engagement management systems that is promoted through the standard. The implemented social risk management systems are ineffective because they makes the MNC unable to recognise the value of weak ties and fail to build legitimacy and trust with some of the key stakeholders resulting in the creation of more instead of less risk. It is argued that this is caused by MNC’s use of CSR systems focuses on building strong ties, rather than on building trust with the stakeholders that actually pose the biggest social risk.

- Baggrund og formål

A quick look at multinational companies (MNC) websites shows that they routinely communicate that they aren’t just in business to make a profit, but that their goals are equally focused on servicing the communities that they affect, for a broader and bigger social purpose (Vallex, 2014, Rusal, 2014, Geopromining, 2014). At the same time the very same companies are looking for compelling reasons why it make good business sense to engage in strategies looking for the connection between profit and ‘doing good’ (Schwartz  & Carroll, 2003; Visser, 2010). This development has happened under the umbrella term Corporate Social Responsibility (CSR) promoting the idea that the actions of companies effects the societies that they operate in and the voices of these stakeholders should be included in the management decision making process (Carrol, 2004). One of the areas were business have found CSR useful is through the introduction into risk management and the argument that it enables companies to reduce social and environmental risks (Kytle & Ruggie, 2005; Vogel, 2008). An example of the use of CSR as Risk management can be witnessed in how MNCs within mining, that are present in Armenia, use standards to communicate with stakeholder groups. However, with globalisation and by that more easy access to information about company operations, it has become increasingly difficult to manage the number of stakeholders that could influence company operations. Research also supports that the principal reason why mining companies had to stop their operation is because they could not live up to the expectations of their local stakeholders (BSR, 2003). This paper is a continuation of this research investigating how mining MNCs in Armenia use CSR standards in an effort to manage social risk in order to building legitimacy with local stakeholders. The central case company used is the Cyprus based MNC Vallex group who operates the mining company Teghout CJSC supplemented with evidence from other mining MNCs operating in Armenia. Empirical evidence is gathered using public sources and a series of interviews with Armenian government officials, politicians, Non-Governmental Organisations (NGO) and local stakeholders who are directly affected by or is affecting mining operations. Research was conducted April to June 2014 and included a two-week field study to Armenian.

- Aktiviteter og handling

Based on approximately 6 months of field work in Armenia.

- Projektets Metode

The project will include both a philosophical and practical aspect. A review of existing literature related to Risk-, CSR- and international business studies will be conducted in order to further explore how international companies especially within the alternative energy sector have been held accountable in different ways. This will produce preliminary a framework for social risk analysis that can be tested in practice on companies currently active within the sector in Armenia.
Testing and refinement will be carried out on the ground in cooperation with alternative energy companies in Armenia in close cooperation with the Armenian Embassy in Denmark and other institutions close to the sector. The Armenian government and other institutions have been very open to research of this kind and have granted access to several resources such as key stakeholders, interpreter assistance and logistical support. Even though Armenia is a relative small country is has a rapidly emerging alternative energy sector that is supported by a strategic effort from the Armenian government to attract international business to invest (ADA, 2011). This type of support is very valuable as it provides inside information on both good and bad experiences, information that would have been difficult to obtain without the active support of key Armenian institutions.
The practical part of the project will be carried out in order to test the proposed model and to further develop the epistemological aspects of social risk. The practical part will continue from the projects ontological starting point within system theory and the hermeneutic tradition utilizing cases studies in international, alternative energy companies as its subject. The case study present the ideal research situation as it provides an opportunity to not only observe phenomena in the real world, but also to explore how different form of challenges are interpreted and processed within different organisations with similar challenges. In this project a case study is defined as a study of a small number of specific industry cases, which are selected and investigated using published information, observations and interviews in their real life context and subsequently analysed in a qualitative manner (Dul & Hak, 2008). This entails that the method used to obtain data need to be consistent and comparative across the different international companies invited to participate. Besides that all cases selected have to be within the selected industries and live up to the criteria of being international they will also need to have at least 50 employees or more, have a need for physical space in order to operate and be in dialogue with local communities and institutions. All factors that screens for cases companies that can contribute with knowledge about their social impact. In order to further validate data a survey of official records produced by the companies and the Armenian government will be used to support statements from key personal and statements from stakeholders in the corporate operating environment. This form of data can be in the shape of annual reports, sustainability reports, press releases or reports issued related to the specific context.
Based on this screening a number of companies are invited to participate in a series of interviews that will be conducted with general management, CSR and risk specialists (if any) or other key personal that deal with stakeholder engagement. The data collected will be used to build a knowledge base on how social risk management is practiced and testing for the theoretical framework. The empirical evidence will also provide insights into the individual experiences of companies have been transferred from one company to another and what form this knowledge transfer have taken. This will be feed into the database of theoretical and practical knowledge that is categorised into distinct risk domains each one contributing to the overall social risk assessment. The domains will be revised and if needed adjusted in-order to include or exclude areas evaluated as being irrelevant or should be more diversified. The results will subsequently be substantiated using interviews with stakeholders with whom the companies have been in contact with. This will serve as a test of the statement and how others have perceived the organisations ability to solve problems and confront context based social issues.
Using this form of case based collection of empirical data is in line with the fundamental theoretical and philosophical promise of the project. Beck (1996) argument that our understanding of risk.

- Projektets Forventede Resultater

A better understanding of the local population’s risk and how multinational companies manage this relationship with the communities that are directly affected by the company’s activities.

- Projektets Forventede Effekt

Savings over start-up and operation of major infrastructure projects and their implications.

Tags CSR | Social Risks
Deltagere
Partnere CBS | Investeringsfonden | ZIBAT | Armenian Development Agency
Finansiering  
- Intern
- Ekstern 100% | Eksterne statslige kilder | Innovationsfonden
Resultat

When MNCs adopt a CSR standards approach they also commit to engage with the local, national and global stakeholders that have an interest or are affected by the actions and decisions that the company makes. This development has spurred a process of stakeholder engagement where mining MNCs in Armenia have adopted CSR standards and philanthropic initiatives. This isomorphic pull has originated from two directions, the institutional investors and from the Armenian government who have implemented a mining code and thereby the governance systems that the mining companies need to comply with.
While the convergence around systems and standards to manage CSR is positive when it comes to effectiveness and creating clear channels of communication it comes at a price. One of the roles of CSR standards is to identify and help mitigate social risk. However, when there is a horizontal institutional convergence between companies across a few key stakeholders in this case the Armenian government and Institutional investors, the CSR systems in themselves can produce risk as companies start to communicate about their activities. According to a network perspective and an understanding of the organisation as embedded in the social context through weak and strong ties, it is possible to offer an explanation why implementation of CSR systems seem to produce more and not less risk. As the CSR systems are based on the idea that companies should be in dialogue with their stakeholders and through the use of engagement programs, philanthropic initiatives etc. they create organisational strong ties. While these ties are effective when it comes to creating consistency and predictability they hinder creativity and new perspectives from which the company can improve its understanding of the social context in which it is situated. Hence the use of CSR systems especially in the mining industry where there are a significant interest becomes a barrier for alternative perspectives and thereby becomes a vessel for social risk production rather than risk reduction.

Evaluering
Formidlingsform  
- Resultatets formidling

Conference EIBA in Uppsala, 2015
public seminars as part of training

- Resultaternes værdi

The development of research in this field

- Målgruppen Researchers in International Business, Risk management and CSR
- Vidensprodukter

Peer rev. Artikel
Workingpaper
Website/blog
Workingpaper
Workingpaper